Rocky’s Weekly Stock Picks

I previously had been avoiding writing covered calls on dividend stocks, because of early assignment. I didn’t understand what was going on, only that I didn’t want to sell shares I intend to hold for at least a year.

If the dividend is less than the premium, then you won’t get assigned. Or more correctly, your risk of assignment is the same as it would be without the dividend. So if the dividend > premium, exercising makes good sense. Let’s apply this basic, but important nugget to this week’s stock picks.

Of course, we will need to hold the shares until market opens on the ex-div date. And then sell immediately. So sort of depends on when we buy.

1. ARR - $0.10/share monthly. I suspect the share price of this REIT is $1.1.91, and will continue to rise, so I’ll buy a call at $12.50 strike for $0.08. I’ll buy 100 shares, as well, in addition to this exercise. It’s a no-lose situation, from where I sit. Worst case scenario, I still make $2 on June 18. Ex-div is 6/14.

2. MRO - Marathon Oil. Small yield dividend, weekly stock options, low volatility. Not our favorite for generating income, but definitely a safe stock to use for playing around with. Ex-div is 6/18 and the last payout was $0.04 a share. So $4 if we buy 100 shares. Ehh…maybe a LEAP is a better play here.

3. QIWI - I know very little about this company, but it has an ex-div on the 5/28 with an estimated $0.19/share. Share price is listed at $11.11 currently. Hypothetically we could buy the $10 contract at $1.18 premium, exercise on 5/27, acquiring the shares for $11.01. We can then sell for a $10 profit after market open on 5/28. Or write a call on it for $10 just out of the money. This is why we don’t mess with stocks we aren’t okay with holding on to.
   
   Not earth-shattering, but not a bad way to reduce cost basis of a stock you might like to own.

4. ET - We were happy to acquire shares at $7, and are happy to acquire more at $10.24. We also intend to hold until sometime in August, for the ex-div. In the meantime we’ll trade weekly options. If we play it safe and write the $0.05 OTM premiums that’s like $50. Then we add the $15 we see from the dividend (low estimate because I don’t want to check), so $65.
   
   Our hypothetical cost basis is now $961. Let’s pretend August prices are all identical to what we see for May 28 and we’ve locked in our dividend. We write a $10 call and receive $33 in premium, and another $39 in profit from selling our shares for a total of $72 profit.
   
   Definitely a slow, conservative trade, with ample opportunity to exit safely.

5. ORC - $5.60 a share, with a monthly payment of $0.065 per share. That’s $6.50/month on a $560 investment. For comparison, my first investment ever was a 6-month CD with a 5% return. I put in $1000. If we did 200 shares of ORC, we’d get $13. in 4 months we’ve broken $50. The next $26 certainly bridges the gap and takes us to $76 for a 6.7% return

   Options trade monthly, and have a huge strike spread. Writing calls at $7.50 for $.01 … so an extra $1, taking us to a total of 7.3% return.

   Ex-div is 5/27. It wouldn’t be a bad idea to get into ORC now if you haven’t already. The next option expiry is 6/18, so there’s time for the price to move around, if you prefer not to hold this REIT.

It appears that the picks this week ended up being less about early assignment because of dividends and more about safe, conservative trades.